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Weekly Fundamental Bulletin: RBA & BoE Meetings

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Last week’s highlights

Australian exports rise by 5.5% in Q4 2020

Export prices in Australia rose by 5.5% on a quarterly basis ending December 2020.

The official data from the Australian Bureau of Statistics showed that it beat the estimates of a 1.3% decline. The increase in the fourth quarter comes on the back of a 5.1% drop in the previous quarter.

Meanwhile, import prices in Australia fell 1% on the quarter. This was slightly better compared to the forecasts of a 2.4% decline.

In the third quarter, import prices fell by 3.5%. On a year over year basis, the annual export prices were up 0.3% while import prices were down 7.3%.

Australian consumer prices rise by 0.9%

The latest consumer price index data from Australia showed that headline inflation rose by 0.9% on the year ending December 2020.

The official data beat expectations of a 0.7% increase which would be an unchanged print. On a quarterly basis, inflation rose by 0.9% which beat forecasts of a 0.7% increase.

However, on a quarterly basis, inflation slowed from 1.6% to the current 0.9%. The RBA’s trimmed-mean CPI was up by 0.4% on the quarter and 1.2% on the year.

Fed leaves monetary policy unchanged

The Federal Reserve bank held its first monetary policy meeting last week. As widely expected, interest rates were left unchanged.

The central bank revealed that it plans to keep asset purchases at the current pace. The Fed’s accompanying statement said that it will continue purchasing the bonds at the pace of at least 120 billion per month.

This is expected to continue until officials see substantial progress. However, investors are starting to speculate on when the bank will begin to wind down its purchases.

Some estimates show that this might not be anywhere until 2024.

Eurozone economic confidence slips

Economic sentiment in the Eurozone fell in January amid a dip in retail trade and services. This comes as the Covid-19 restrictions are in force across the major economies in the region.

The economic sentiment index fell to 91.5 in January from 92.4 in December. But the decline was better than the forecasts of a drop to 89.5.

The industrial confidence index rose from -6.8 in December to -5.9. Construction confidence remained broadly unchanged.

The business confidence index rose marginally from -0.40 in December to -0.27 in January. The data underlined the fact that the Eurozone economy is likely to contract once again in the first quarter of this year.

US durable goods orders rise at a slower pace

The monthly durable goods orders data released by the Commerce Department showed a slower than forecast increase. This comes after the durable goods orders rose sharply in November.

Data showed that durable goods orders rose by 0.2% in December following a 1.2% gain in November. Forecasts pointed to a 0.9% increase during the month.

The slower than expected rise in durable goods orders comes on the back of transportation equipment which fell by over 1% during the month after rising 1.9% in November.

Upcoming Economic Events

RBA to keep interest rates unchanged

The Reserve Bank of Australia will be holding its monetary policy meeting this week. The bank is widely expected to leave interest rates unchanged.

The RBA board is, however. likely to give updated forecasts on both growth and inflation outlook. This comes amid the underlying data in the labor market showing a stronger than expected rebound.

The same goes for the housing market as well, which has been improving in the past few months.

New Zealand Q4 unemployment data on tap

The fourth quarter unemployment rate from New Zealand is due this week.

Further recovery in the hours worked is expected to boost productivity. Overall, the forecasts show that the quarterly change in employment will rise by 0.3% following a 0.8% decline.

However, the unemployment rate for New Zealand is forecast to rise from 5.3% to 5.4%. But this increase is expected to come on the back of a rising participation rate.

Eurozone Q4 GDP to contract

The Eurozone will be releasing its quarterly GDP figures this week for the three months ending December 2020.

Forecasts show that after recovering 12.5% in the previous quarter, growth will once again contract. As a result, the estimates point to a 1.7% decline in growth during the fourth quarter of 2020.

However, upside surprises could see the GDP growth rate coming in slightly better. This comes amid recent GDP figures from various Eurozone economies showing a broadly improved performance during the period.

Eurozone Feb flash inflation to rise

The initial inflation estimates for the Eurozone are due this week. The overall data is forecast to show a modest increase.

The headline inflation rate is forecast to rise by 0.4% on the year in February. This will reverse the 0.3% decline in January. Meanwhile, the core CPI, which excludes the volatile food and energy prices is forecast to rise by 1.0% on the year after a record low of 0.2% in the past four months.

Inflation is expected to rise as the four-month cut in German VAT ends in January. Higher fuel costs are also expected to be one of the reasons behind the uptick in CPI data for the Eurozone.

Bank of England to keep policy steady

The Bank of England will be holding its monetary policy meeting this week. This time, the meeting comes after the UK and the EU parted ways with a Brexit deal in hand.

Furthermore, the steady rollout of the coronavirus vaccine in the UK is also in full swing. As a result, BoE officials are likely to keep interest rates unchanged.

In terms of the economic outlook, BoE officials are likely to downgrade near term growth outlook. At the same time, the central bank will be holding its current pace of asset purchases steady at least until March this year.

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